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Climate change leads to rising subsidence risks in Europe

Subsidence caused by drought now costliest natural hazard in some parts of Europe

News reports on climate change have focused on dire predictions of more hurricanes and increasing flooding due to rising sea levels.

But subsidence caused by drought, which has already become a major problem across Europe, will also become much worse due to global warming.

The most costly natural hazard

Informing the market

An increasing wealth of scientific evidence is available to predict the impact of changing weather patterns and future climate change on the insurance industry.

To help inform the insurance market, the Lloyd’s ‘Adapt or Bust’ report gives an overview of some of the science behind six key climate issues including sea temperatures, rain, snow and instability of the climate.

It also examines how these issues might impact society – and the business world – and discusses what action can be taken to mitigate their effects.

Understanding climate science and responding to it must become business as usual for insurers and those they work with, the report concludes.

Subsidence is one of the costliest but least known property risks. Unlike a roaring storm, the damage wreaked by subsidence takes years rather than hours, but it can be serious.

In some parts of Europe, subsidence claims are now the costliest natural hazard, comparable to serious flooding, says Swiss Re in its report "The hidden risks of climate change: An increase in property damage from drought and soil subsidence in Europe". In France, subsidence-related claims have risen by more than 50% in the past 20 years, costing the affected regions €340 million every year on average.

"As our climate continues to change, the risk of property damage from soil subsidence is not only increasing but also spreading to new regions in Europe," says Matt Weber, Head of Property & Specialty Underwriting at Swiss Re.

Swiss Re and the Swiss Federal Institute of Technology (known as ETH Zurich) have developed a new model to reliably estimate future risks and calculate expected losses from soil subsidence across Europe.

Climate change is likely to cause hotter, sunnier weather with more erratic rainfall, resulting in more droughts, which will increase the risk of subsidence. A prolonged heatwave may bake the ground, creating fissures that can tear apart the foundations of houses, bridges and factories.

Global warming already having effect

Climate change has already led to a dramatic – and often unforeseen – rise in soil subsidence risks in recent years, says Swiss Re.

Its model shows that large parts of the UK, France, Denmark, and northern regions of Germany, Spain and Italy have seen their potential subsidence risk jump by more than 50% compared to the period 1951-1970. Most of these regions have not adapted to the greater risk, Swiss Re notes.

Worse is likely to come. Southern areas of England, France, Spain and Italy as well as countries across eastern Europe will see their risk of subsidence-related claims rise by a further 50% between 2021 and 2040 as climate change worsens, Swiss Re says.

As the rising risk of subsidence becomes better understood, national and local governments should take measures to manage it, by taking it into account when planning and designing buildings and by beefing up building regulations. But insurance remains the most cost-effective option, the report concludes.

Apart from traditional cover under property policies the industry should consider more innovative solutions to the problem, such as parametric or index-based covers, where the payout is determined by a pre-agreed trigger, for example if rainfall in a particular area is less than a predetermined amount.

“The Swiss Re report is excellent and I welcome its detail,” Trevor Maynard, Lloyd’s Head of Exposure Management, tells Lloyds.com. The rising risk from climate change-induced subsidence was highlighted in a 2006 Lloyd’s report, “Adapt or Bust” (see sidebar).

“By teaming up with ETH Zurich to create the model they have augmented insurance data with solid scientific data relating to droughts. It’s particularly important that they show an increase in subsidence costs has already occurred and that they link it to climate change. They note that their model understates the losses in 2003, so peak subsidence events could cost even more than illustrated. That said, we agree with their conclusion that loss models give very useful information when assessing risk," says Maynard.

He adds: “I’m pleased to see they recommend forward-looking estimates of loss when assessing risk – it’s an approach we fully agree with. We also concur with their general point that climate change adaptation works hand in hand with insurance to keep premiums affordable for longer.”

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